INFO 3435 eCommerce
Teaching Objectives
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10. Online Retail and Services
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Describe the environment in which the online retail sector operates
today.
Explain how to analyze the economic viability of an online firm.
Identify the challenges faced by the different types of online retailers.
Describe the major features of the online service sector.
Discuss the trends taking place in the online financial services industry.
Describe the major trends in the online travel services industry today.
Identify current trends in the online career services industry.
Alexander Nikov
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Blue Nile Sparkles For Your Cleopatra
Outline
Class Discussion
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Why is selling (or buying) diamonds over the Internet difficult?
How has Blue Nile built its supply chain to keep costs low?
How has Blue Nile reduced consumer anxiety over online diamond
purchases?
What are some vulnerabilities facing Blue Nile?
Would you buy a $5,000 engagement ring at Blue Nile?
1. The Online Retail Sector
2. Analyzing the Viability of Online Firms
3. eCommerce in Action: E-tailing Business Models
4. The Service Sector: Offline and Online
5. Online Financial Services
6. Online Travel Services
7. Online Career Services
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What’s New in Online Retail, 2013-2014
What’s New in Online Retail
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Mobile commerce exploding
Social networks experiment with social commerce
Online retail still the fastest growing retail channel
Buying online a normal, mainstream experience
Selection of goods increases, includes luxury goods
Informational shopping for big-ticket items expands
Specialty retail sites show rapid growth
Integration of multiple retailing channels
Big Data used for predictive marketing
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The Retail Industry
The Online Retail Sector
• Most important theme in online retailing is effort
to integrate online and offline operations
• 7 segments (clothing, durable goods, etc.)
– For each, uses of Internet may differ
• Information vs. direct purchasing
• $17 trillion U.S. economy
• U.S. retail market
– Personal consumption of goods and services
accounts for $11.8 trillion (about 69%) of total gross
domestic product (GDP)
• General merchandisers vs. specialty
retailers
• Mail order/telephone order (MOTO) sector
most similar to online retail sector
– Sophisticated order entry, delivery, inventory
control systems
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Composition of the U.S. Retail Industry
E-commerce Retail: The Vision
1. Reduced search and transaction costs; customers
able to find lowest prices
2. Lowered market entry costs, lower operating costs,
higher efficiency
3. Traditional physical store merchants forced out of
business
4. Some industries would be disintermediated
Figure 9.1, Page 568
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Few of these assumptions were correct—structure of
retail marketplace has not been revolutionized
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Internet has created new venues for multichannel firms
and supported a few pure-play merchants
SOURCE: U.S. Census Bureau, 2012.
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The Growth of Online Retail in the United
States
The Online Retail Sector Today
• Smallest segment of retail industry (6%)
• Growing at faster rate than offline segments
• Revenues have resumed growth
• Around 75% of Internet users bought online in 2014
• Primary beneficiaries:
– Established offline retailers with online presence
(e.g. Staples)
– First mover dot-com companies (e.g. Amazon)
Figure 9.2, Page 571
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SOURCES: Based on data from eMarketer, Inc. 2014a
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The Online Retail Sector Today (cont.)
• Omni-channel integration
– Integrating Web operations with traditional physical
store operations
• Leverage value of physical store
• Types of integration, e.g. online order, in-store
pickup
• Social commerce growth
• Location-based marketing of local goods and services
• Rapidly growing mobile platform
– Tablets – the “ultimate shopping machine”
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Retail eCommerce:
Multi-channel integration methods
Outline
1. The Online Retail Sector
2. Analyzing the Viability of Online Firms
3. eCommerce in Action: E-tailing Business Models
4. The Service Sector: Offline and Online
5. Online Financial Services
6. Online Travel Services
7. Online Career Services
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Strategic Analysis Factors
Analyzing the Viability of Online Firms
• Key industry strategic factors
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Economic viability:
– Ability of firms to survive as profitable business firms
during specified period (i.e., 1–3 years)
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Two business analysis approaches:
1. Strategic analysis
• Focuses on both industry as a whole and firm itself
2. Financial analysis
• How firm is performing
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Barriers to entry
Power of suppliers
Power of customers
Existence of substitute products
Industry value chain
Nature of intra-industry competition
• Strategic factors related to specific firm
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Firm value chain
Core competencies
Synergies
Technology
Social and legal challenges
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Outline
Financial Analysis Factors
• Statements of Operations
1. The Online Retail Sector
2. Analyzing the Viability of Online Firms
3. eCommerce in Action: E-tailing Business Models
4. The Service Sector: Offline and Online
5. Online Financial Services
6. Online Travel Services
7. Online Career Services
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Revenues
Cost of sales
Gross margin
Operating expenses
Operating margin
Net margin
• Pro forma earnings—EBITDA
• Balance sheet
– Assets, current assets
– Liabilities, current liabilities and long-term debt
– Working capital
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E-commerce in Action: Amazon.com
E-commerce in Action: Amazon.com
• Strategic analysis/technology:
– Largest, most sophisticated collection of online retailing
technologies available
• Strategic analysis/social, legal:
– Sales tax, patent lawsuits
• Future prospects:
– In 2014, Amazon registered more than $39 billion in
sales, compared to $31 billion in 2013
– Increased selection and in-stock availability
– Increased spending on new technology initiatives (Fire
phone), new warehouses, video library, original
programming, and new products/services
• Vision:
– Earth’s biggest selection, most customer-centric
• Business model:
– Amazon Retail, Third Party Merchants, and Amazon Web
Services (merchant and developer services)
• Financial analysis:
– Continued explosive revenue growth, profitable
• Strategic analysis/business strategy:
– Maximize sales volume, lower costs and prices, acquisitions,
mobile shopping, new products and services, Amazon Fire
phone and TV
• Strategic analysis/competition:
– Online and offline general merchandisers, Web services
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Amazon’s
consolidated
statement of
operations and
summary balance
sheet data 2011-2013
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E-tailing Business Models
• Virtual merchant
– Amazon
• Omni-channel (bricks-and-clicks)
– Walmart, Macy’s
• Catalog merchant
– Lands’ End, L.L. Bean
• Manufacturer-direct
– Apple, Dell, Sony
– Channel conflict
– Move from supply-push model to demand-pull
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Common Themes in Online Retailing
Outline
• Online retail fastest growing channel in retail
commerce
1. The Online Retail Sector
2. Analyzing the Viability of Online Firms
– Profits for startup ventures have been difficult to achieve
• Disintermediation has not occurred
• Established merchants need to create integrated
shopping experience to succeed online
• Growth of online specialty merchants ( e.g., Blue
Nile)
• Extraordinary growth of social, local, and mobile
e-commerce
• Increasing use of Big Data analytics by retailers
3. eCommerce in Action: E-tailing Business Models
4. The Service Sector: Offline and Online
5. Online Financial Services
6. Online Travel Services
7. Online Career Services
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The Service Sector: Offline and Online
• Service sector:
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Service Industries
• Major service industry groups:
– Finance
– Largest and most rapidly expanding part of
economies of advanced industrial nations
– Insurance
– Concerned with performing tasks in and around
households, business firms, and institutions
– Travel
– Real estate
• Includes doctors, lawyers, accountants, business
consultants, etc.
– Employs 4 out of 5 U.S. workers
– 80% of economic activity
– Professional services—legal, accounting
– Business services—consulting, advertising,
marketing, etc.
– Health services
– Educational services
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Service Industries
Outline
• Two categories
– Transaction brokers
– Hands-on service providers
• Features:
– Knowledge- and information-intense
• Makes them uniquely suited to e-commerce
applications
– Personalization and customization
• Level differs depending on type of service
1. The Online Retail Sector
2. Analyzing the Viability of Online Firms
3. eCommerce in Action: E-tailing Business Models
4. The Service Sector: Offline and Online
5. Online Financial Services
6. Online Travel Services
7. Online Career Services
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Online Financial Services
• E-commerce has transformed banking and financial
services
– Major institutions deploy online services
• Online financial consumer behavior
– Most online consumers use financial services sites
• Check balances
• Pay bills
– Experienced users move on to more complex
financial services
– Number of people using mobile devices for financial
services is surging
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Industry Consolidation and Integrated
Financial Services
Online Financial Consumer Behavior
• Consumers attracted to online financial sites because of
desire to save time and access information rather than save
money
• Most online consumers use financial services firms for
mundane financial management
• Check balances
• Pay bills
• Number of people using mobile devices for financial
services is surging
Figure 9.3, Page 609
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The Growth of Online Banking
Online Banking and Brokerage
• Online banking pioneered by NetBank and Wingspan; no
longer in existence
• Established brand-name national banks have taken
substantial lead in market share
• Over half of U.S. adults use online banking
• Early innovators in online brokerage (E*Trade) have been
displaced by established brokerages (Fidelity, Schwab)
Figure 9.4, Page 610
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SOURCE: Based on data from comScore, 2010, eMarketer, Inc., 2010b.
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Top online brokerages, 2013
Multi-channel vs.
Pure Online Financial Service Firms
• Online consumers prefer multi-channel firms with
physical presence
• Multi-channel firms
– Growing faster than pure online firms
– Lower online customer acquisition costs
• Pure online firms
– Cannot provide all services that require face-to-face
interaction
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Online Mortgage and Lending Services
Financial Portals and Account Aggregators
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– Comparison shopping services, independent financial advice
and financial planning
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– Revenues from advertising, referrals, subscriptions
Difficulties of developing brand and simplifying mortgage
generation process
Three kinds of online mortgage vendor today
1. Established online banks, brokerages, and lending
organizations
– E.g., Yahoo! Finance, Quicken.com, MSN Money
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Early entrants hoped to simplify and speed up mortgage value
chain
Financial portals
Account aggregation
2. Pure online mortgage bankers
– Pulls together all of a customer’s financial data at a personalized
Web site
3. Mortgage brokers
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– E.g., Yodlee: provides account aggregation technology
Online mortgage industry has not transformed process of
obtaining mortgage
– Privacy concerns; control of personal data, security, etc.
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Complexity of process
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Online Real Estate Services
Online Insurance Services
• Online term life insurance:
• One of few products for which Internet lowered search
costs, increased price comparison, and resulted in lower
prices
• Early vision: local, complex, and agent-driven real estate
industry would transform into disintermediated marketplace
where buyers and sellers would transact directly
• However, major impact is influencing of purchases offline
– Impossible to complete property transaction online
• Commodity
– Main services are online property listings, loan
calculators, research, and reference material, with mobile
apps increasing
• Most insurance not purchased online
• Online industry geared more toward
• Product information, search
• Price discovery
• Online quotes
• Influencing the offline purchasing decision
• Despite revolution in available information, there has not
been a revolution in the industry value chain
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Online Travel Services
Outline
• One of the most successful B2C e-commerce segments
– More travel is booked online than offline
– Online travel services revenues in 2014: Over $145
billion
• For consumers: More convenient than traditional travel
agents
• For suppliers: A singular, focused customer pool that can
be efficiently reached through onsite advertising
1. The Online Retail Sector
2. Analyzing the Viability of Online Firms
3. eCommerce in Action: E-tailing Business Models
4. The Service Sector: Offline and Online
5. Online Financial Services
6. Online Travel Services
7. Online Career Services
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Online Travel Services
Online Travel Services Revenues
• Travel an ideal service/product for Internet
– Information-intensive product
– Electronic product—travel arrangements can be
accomplished for the most part online
– Does not require inventory
– Does not require physical offices with multiple employees
– Suppliers are always looking for customers to fill excess
capacity
– Does not require an expensive multi-channel presence
Figure 9.3, Page 603
SOURCE: Based on data from eMarketer, 2014e.
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The Online Travel Market
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Online Travel Industry Dynamics
• Four major sectors:
– Airline tickets
• Greatest source of revenue
– Hotel reservations
– Car rentals
– Travel packages
• Corporate online-booking solutions (COBS)
• Intense competition among online providers
• Price competition difficult
• Industry consolidation
– Stronger, offline established firms purchasing weaker
online firms to create multi-channel travel sites
• Industry impacted by meta-search engines
– Commoditize online travel
• Mobile applications are also transforming industry
• Social media content, reviews have an increasing influence
on travel purchases
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Major online travel sites
The Travel Services Value Chain
Figure 9.7, Page 628
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Outline
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Online Career Services
1. The Online Retail Sector
• Two main players: CareerBuilder, Monster
• Five traditional recruitment tools:
– Classified and print ads, career expos, on-campus
recruitment, staffing firms, internal referral programs
• Online recruiting
– More efficient, cost-effective, reduces total time-tohire
– Enables job hunters to more easily distribute resumes
while conducting job searches
– Ideally suited for Web due to information-intense
nature of process
2. Analyzing the Viability of Online Firms
3. eCommerce in Action: E-tailing Business Models
4. The Service Sector: Offline and Online
5. Online Financial Services
6. Online Travel Services
7. Online Career Services
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Popular online recruitment sites
It’s Just Information:
The Ideal Web Business?
• Recruitment ideally suited for Web
– Information-intense process
– Initial match-up doesn’t require much personalization
• Saves time and money for both job hunters and
employers
• One of the most important functions:
– ability to establish market prices and terms (online
national marketplace)
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Online Recruitment Industry Trends
• Consolidation
• Diversification: Niche employment sites
• Localization:
– Local vs. national, Craigslist
• Job search engines/aggregators:
– “Scraping” listings
• Social networking:
– LinkedIn; Facebook apps
• Mobile Web sites and apps
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